Buy Cholamandalam Finance; target of Rs 1950: ICICI Securities

Moneycontrol • 3 days ago

Original source

Key Investment Pillars

  • Diversified product suite: Cholamandalam Finance has a diversified product suite, including vehicle finance, mortgages, and consumer finance, which helps to mitigate risks and increase revenue streams.
  • Strong risk management framework: The company has a strong risk management framework in place, which has helped to maintain asset quality and minimize credit costs.
  • Access to low-cost funding: Cholamandalam Finance has access to low-cost funding, which helps to reduce its cost of funds and increase profitability.
  • INR 50bn capital raise: The company plans to raise INR 50bn in equity capital to strengthen its balance sheet and support future growth.

Thesis Validation Checklist

  • AUM growth: Investors should watch for AUM growth to remain at 25% YoY, with a focus on non-vehicle finance businesses.
  • Credit cost: Credit cost is expected to remain at 1.4%, with a focus on maintaining asset quality.
  • Margins: Net interest margins are expected to compress due to rising interest rates, but the company plans to offset this with lower credit costs and operational efficiency.
  • Return on assets (RoA) and return on equity (RoE): RoA and RoE are expected to remain healthy, with a focus on maintaining profitability.